Daily Management Review

Russia Paid Middlemen For Half Of Its Payments To China: Report


Russia Paid Middlemen For Half Of Its Payments To China: Report
According to four people who spoke to Reuters, the market for middlemen has flourished as a result of Russian businesses' attempts to pay for products in China since secondary penalties have scared off local banks, with up to 50% of transactions now being handled via intermediaries.
The U.S. Treasury has called on international institutions to increase compliance, opened a new tab with Russia, and threatened to impose penalties on anyone who facilitate transactions.
Chinese banks are reducing their business with Russian enterprises because to the danger, and these companies are producing a backlog at VTB Shanghai by hurrying to register accounts at the sole Russian lender with a Chinese branch.
Despite the high costs and danger of having shipments seized in other countries, firms have been turning to intermediaries due to protracted transactions and shipping delays, according to sources that included trade consultants, bankers, importers, and exporters. All of these individuals requested anonymity in order to reveal sensitive information.
"There are a lot of (Russian) businessmen who just go from bank to bank, opening current accounts," said one of the sources. "If their payment doesn't go through, they go to the next one."
According to a different source, in order to process payments considerably faster, several businesses have shifted to hiring payment agents and setting up networks of temporary businesses.
The sources stated that the intermediaries are legal companies from countries deemed "friendly" to Russia, such as Kazakhstan, the United Arab Emirates, Hong Kong, Kyrgyzstan, and other jurisdictions. Moscow uses this phrase to refer to nations that have not imposed sanctions due to the crisis in Ukraine.
About half of these Russian enterprises use the services of intermediaries, according to two Russian consultants who work with them; bigger Russian corporations, many of which are subject to Western sanctions, had already set up schemes with intermediaries a year prior.
According to a consultant, just 25% of Russian entities have complete access to their Chinese bank accounts, and the remaining 51% have restricted access.
Using middlemen can lead to a number of issues. According to the reports, they can demand commissions of several thousand dollars for each transaction, and when items from foreign countries are involved, there is a chance that they would be seized.
According to one of the sources, a sizable shipment of servers that were being sent from China to Russia via Kazakhstan were seized because they were subject to U.S. sanctions.
Chinese banks have the ability to reject payments made through intermediaries, and because these transactions are not as formal, Russian businesses may find it difficult to recover their losses.
An unidentified quantity of yuan that a Russian importer had been attempting to transmit to China for almost a month has gone missing, the importer told Reuters.
But a Russian textile firm claimed that, with the assistance of a middleman, it was able to create an account in China and transfer money from Kyrgyzstan without having to go through laborious compliance processes.
Customs data shows that Chinese shipments to Russia increased by 64.2% in 2022 compared to the previous year, and total commerce between the two nations reached a record $240 billion.
China is purchasing additional Russian oil, payments for which have also been postponed, and is providing Moscow with automobiles and machinery in particular.
"As far as international payments are concerned...we see the risk of secondary sanctions increasing and payments becoming more complicated," Bank of Russia Governor Elvira Nabiullina said on Friday. "We are in contact with our partners to look at ways to facilitate payments."
The people with knowledge of the situation indicated that some companies are expecting that President Vladimir Putin's visit to China next month would assist find a solution.
"Something may change after the official Russian delegation's visit to China" , a single individual stated.
Some are more gloomy; one claims that although commerce between the two nations is expanding, China's trade turnover with the US and the EU still exceeds that of Russia, therefore the latter country was not a priority for Chinese banks.
"They will not sacrifice their market for the sake of payments to Russian companies," stated the individual.